by

Erik R. Sirri

Director, Division of Trading and Markets
U.S. Securities and Exchange Commission

Commission Open Meeting
Washington, D.C.
June 25, 2008

Thank you, Mr. Chairman. As you noted, self-regulation, with oversight by the Commission, is a basic tenet of the Exchange Act. In Section 19 of the Exchange Act, Congress charged the Commission with oversight of SRO rules and proposed changes to those rules. SROs are required to file with the Commission their proposed rule changes on Form 19b-4. The Commission then publishes notices of these proposals in the Federal Register and solicits public comment thereon. An SRO's proposed rule change may not take effect unless it is approved by the Commission or becomes immediately effective upon filing pursuant to Section 19(b)(3)(A) of the Exchange Act.

Presently, over half of SRO proposed rule changes are designated for immediate effectiveness. The guidance that the Commission is considering today is intended to increase that percentage with respect to certain rule changes — most notably changes to an exchange's trading systems.

The guidance should encourage exchanges to file a broader range of proposed changes to their trading rules pursuant to Rule 19b-4(f)(6) when such proposals do not "significantly affect the protection of investors or the public interest" or "impose any significant burden on competition." The guidance is applicable to any change that involves, and is consistent with, policy issues that have been considered previously by the Commission. The proposed guidance also applies to "copycat" proposals that are based on the rules approved for another SRO, as well as changes to minor rule violation plans.

Notably, this proposal would not modify or amend Rule 19b-4, nor would it impose new or additional obligations on SROs with regard to the rule filing process. Rather, the guidance should result in more filings that are currently subject to Commission approval being instead filed for immediate effectiveness.

Additionally, the proposal would streamline the SRO rule change process, particularly for "regular way" filings that are subject to Commission approval, by specifying the Commission's expectation for the issuance of notice of an SRO's proposal. As you indicated, the Exchange Act does not impose a deadline by which the Commission must issue notice of an SRO's proposal.

The amendment to Rule 30-3 that the Commission is considering today will require the Commission to notice promptly all proposed rule changes that are properly filed and comply with all applicable requirements of Form 19b-4, Section 19 of the Exchange Act, and Rule 19b-4 thereunder. Thus, to the extent that an SRO's proposed rule change proposal is drafted with precision and provides information necessary to elicit meaningful public comment thereon, the Commission will issue notice of the proposal within 15 business days.

In recognition of the infrequent circumstances in which the 15 business day requirement may be impractical, the rule permits the Director of the Division of Trading and Markets in such circumstances to hold a filing for additional review. This authority would reside exclusively with the Director and could not be subdelegated.

The Division believes that the interpretive guidance and requirement to notice filings within 15 business days constitute a significant step forward in the Commission's continuing efforts to streamline the rule filing process applicable to SROs.

The proposal should enhance SROs' ability respond quickly to competitive pressures and changes in the marketplace, and should facilitate competition, innovation, and better services to investors. The proposal also should enhance transparency with respect to the rule filing process, and will provide additional certainty to SROs with respect to the issuance of notices of their proposed rule changes.

Accordingly, the Division recommends that the Commission issue the accompanying release, which would become effective upon publication in the Federal Register.

I would like to thank Robert Colby, Elizabeth King, David Shillman, Richard Holley, and Marlon Paz on my staff for their hard and diligent work on this project as well as James Overdahl and Charles Dale in the Office of Economic Analysis; and Meridith Mitchell, Janice Mitnick; and Deborah Flynn in the Office of the General Counsel.